1. If the yearly nominal interest rate on a savings account is 8% and the rate of inflation over the same period is 2%, what is the real interest rate? A. 6% B. 2% C. 8% D. 10%

2. If treasury securities with longer maturities offer lower annualized yields, the corresponding yield curve would be ___________ .

A. upward sloping B. downward sloping C. flat D. there is not enough information provided to determine the shape of the yield curve.

3. What is the future value of a ten-year ordinary annuity of $20,000, using an interest rate of 4%?

A. $200,000 B. $240,000 C. $240,112 D. $260,000 E. None of the above

4. You want to start saving for retirement. If you deposit $2000 at the end of each year for the next 60 years and earn an 11% annual rate of return on the investment, how much will you have when you retire? Round to the nearest dollar.

A. $10,556,246 B. $792,000 C. $1,048,114 D. $9,510,132 E. None of the above

5. According to accounting principles:

A. current assets should equal current liabilities B. net working capital should equal zero C. operating expenses during the year are tied to revenues they helped to generate D. depreciation is a cash expense

6. Suppose you own your own Christmas Tree lots. Your fixed costs are $100,000 per year, variable costs are $40/unit and you sell trees for $80 each. You have just learned that rent for your Christmas tree lots will increase by $10,000 next season. Assume sales remain at 3,750 trees. What will be your DOL after the change?

A. 2.5 B. 3 C. 3.75 D. 4.33

7. Suppose Microsoft issues a 7% coupon bond with semiannual payments, a maturity of 20 years and a face value of $1,000. What is the current market value of the bond? Assume the appropriate market rate of return is 8%.

A. $258.42 B. $901.82 C. $901.04 D. $463.40